Question 1

Accepted Answer

***The March 4 lease may bind Maya personally, while Bright Harbor’s later adoption also makes the corporation liable.***
- Bright Harbor did not exist until its articles were filed on **March 20**, so Maya presumptively incurred personal liability when she signed on its behalf, despite using the title “President.”
- The board’s March 22 resolution was **express adoption**; Bright Harbor’s occupancy and six rent payments also demonstrate adoption through its conduct, but neither form of adoption alone released Maya.

**Traps in this case**

*Treating the landlord’s knowledge as a release*
- The landlord knew Bright Harbor was unformed when Maya signed, but the lease did not allocate preformation liability or release her.

*Treating adoption as a novation*
- The key follow-up is whether the landlord agreed with Maya and Bright Harbor to **substitute the corporation for Maya**; the landlord’s comment that the company was “finally official” does not establish that agreement.

*Advising that only one party owes the unpaid rent*
- Absent evidence of a novation, the landlord may likely pursue **both Bright Harbor and Maya** for the three unpaid months.

Question 2

Accepted Answer

***Nova’s use of the equipment binds it to the agreement but does not release Ortiz from her preincorporation liability.***
- Ortiz signed for Nova before its March 15 incorporation, so Exhibit 3 makes her **personally liable** despite the corporate signature block and Forge’s awareness that incorporation was expected.
- Nova’s acceptance, four months of use, and two payments support **adoption** of the agreement; without a novation or other agreement with Forge, adoption does not release Ortiz.

***The warehouse lease turns on Ortiz’s authority; removing her as president is a separate board decision.***
- Exhibit 2’s board-approval requirement limits Ortiz’s **actual authority**, but the undisclosed minutes do not necessarily defeat apparent authority arising from Nova’s public identification of her as president and its permission for her to sign shorter facility agreements.
- Under Exhibit 3, the **board** may remove Ortiz as president without itself removing her as a director, subject to governance procedures and any contractual rights.

**Traps in this case**

*Treating the board’s private restriction as decisive against the landlord*
- Whether the landlord **knew** final leases required board approval is central to whether reliance on Ortiz’s apparent authority was reasonable under Exhibit 4.

*Treating adoption as a release*
- Nova’s payments can bind Nova to the Forge agreement, but they are not the **novation** needed to discharge Ortiz.

*Treating officer removal as director removal*
- The board should check the bylaws and any employment agreement, give appropriate meeting notice, vote on officer removal, and record the decision and transition; that vote does **not itself** end Ortiz’s directorship.

Question 3

Accepted Answer

***The $42,000 printer purchase likely binds Riverside externally but gives Riverside a potential internal claim against Ava.***
- Under Authority 1, Ava appeared to carry on Riverside’s ordinary printing business; PrintWorks had dealt with her before and had **no notice** of Exhibit 1’s approval limit.
- Exhibit 1 required another partner’s approval for equipment costing over **$30,000**, so Ava likely violated the agreement even though Ben’s later objection did not undo the contract.

***Chen’s business-related driving likely exposes Riverside and its general partners to the pedestrian’s claim.***
- Chen was returning directly with ink for pending projects when he negligently ran the red light, placing the injury in the **ordinary course** of partnership business under Authority 1.
- The partners face **potential joint and several liability** for any unsatisfied obligation; preserve the van and relevant records first, promptly notify insurers, then investigate before assessing internal claims.

**Traps in this case**

*Treating an internal limit as notice to PrintWorks*
- The $30,000 limit may support a claim against Ava, but Exhibit 2 says PrintWorks never knew of it.

*Confusing ordinary decisions with fundamental changes*
- Exhibit 1 permits **majority** decisions on routine purchases and vendors, but admitting an equal partner or selling substantially all operating assets requires unanimity.

*Assuming insurance caps the pedestrian’s recovery*
- The documented loss is **$70,000**, while available assets and insurance total **$45,000**, leaving a potential $25,000 shortfall for which general partners may be pursued, subject to applicable procedure.

Question 4

Accepted Answer

***The shed venture exceeds Nova Home’s stated purpose, but that does not automatically void the SupplyWorks agreement.***
- Manufacturing outdoor sheds is **ultra vires** under the articles, yet Authority 1 permits SupplyWorks to pursue Nova Home despite that purpose restriction.
- The board approved use of the equipment and three payments, but its vote was not **shareholder ratification**; counsel should investigate whether shareholders later ratified the venture at a properly called meeting.

***The BoxPro contract likely binds Nova Home through Chen’s presidential authority.***
- Bylaw 5.3 gives the president **actual authority** to sign ordinary supply contracts up to $75,000, covering the $60,000 packaging contract.
- The board’s prior course of dealing supports the keyed **ratification** argument, while its website statement and BoxPro’s lack of notice also support apparent authority under Authority 2.

**Traps in this case**

*Treating ultra vires as automatically void*
- Authority 1 preserves claims involving an ultra vires act even though shareholders may seek an injunction or other remedies.

*Confusing board approval with shareholder ratification*
- Shareholders elect directors and may ratify the venture, while the board manages business affairs under Bylaw 4.1.

*Treating one director’s private instruction as notice to BoxPro*
- BoxPro did not know of the instruction, so it does not necessarily defeat reliance on Nova Home’s manifestations of Chen’s authority.

Question 5

Accepted Answer

***Summit’s defective filing makes Alex’s knowledge and the applicable incorporation doctrine decisive.***
- Alex mailed the articles before signing the March 3 agreement, but the missing registered agent designation prevented incorporation until the corrected articles were accepted on **April 5**; the earlier attempt and exercise of corporate powers may support **de facto corporation** status where that doctrine survives.
- Under Authority 1’s modern statutory rule, liability for acting on behalf of an unincorporated corporation requires **knowledge** that incorporation had not occurred; Alex’s lack of notice until April 2 supports a defense concerning the agreement, while Summit remains answerable for its contractual obligation.

**Traps in this case**

*Treating mailing as completed incorporation*
- Exhibit 2 establishes that mailing on March 1 did not cure the defective articles, which the Secretary of State rejected on March 10.

*Treating the rejected filing as automatic personal liability*
- Authority 1 distinguishes a defective filing from **knowing** action without incorporation, so the timing and extent of Alex’s knowledge matter.

*Assuming Vertex’s dealings eliminate every dispute*
- Vertex’s treatment of Summit as a corporation may support **corporation by estoppel**, but Exhibit 3’s April 2 statement that incorporation was complete preceded the April 5 acceptance.

Question 6

Accepted Answer

***Solstice adopted the first order, but Ortiz remained liable; the second order turns on actual and apparent authority.***
- Under Authority 1 and Exhibit 1, the unanimous board resolution bound Solstice to the **$40,000** preformation order, but adoption did not release Ortiz without a novation.
- For the **$85,000** order, the private instruction raises an actual-authority issue, while the certificate delivered to Apex supports apparent authority if reliance on ordinary-course purchasing authority was reasonable.

***The warehouse vote failed, and counsel should investigate before giving a firm conclusion on the second order.***
- Under Authority 2, two directors supplied a **quorum**, but the acquisition received only one of the two affirmative votes required; Ortiz’s approval as president was not another director vote.
- Counsel should preserve the certificate, instruction, order, and communications; examine Apex’s communications and industry practice; give a **qualified** assessment; and then address whether the board wishes to ratify, reject, or negotiate the order.

**Traps in this case**

*Treating incorporation or adoption as Ortiz’s release*
- Authority 1 makes Solstice’s adoption distinct from a **novation**, so neither incorporation nor the board resolution alone ended Ortiz’s promoter liability.

*Treating the private instruction as conclusive against Apex*
- Apex did not know of the instruction, and reasonable reliance instead depends particularly on whether comparable component orders are ordinarily placed by robotics-company presidents without separate board approval.

*Substituting irrelevant facts or the president’s vote*
- Ortiz’s profit expectations, a director’s preferred warehouse seller, and a salesperson’s past employer do not resolve Apex’s reliance, while Ortiz’s presidential approval cannot supply the missing **director vote**.

Question 7

Accepted Answer

***Apex adopted the preformation agreement, but its adoption did not automatically release Jordan.***
- Under Exhibit 3, Apex came into existence on **March 20**; its board’s March 25 resolution expressly adopted the agreement, and Apex’s delivery acceptance, use, and $20,000 payment also showed adoption, leaving **$60,000** unpaid.
- Jordan signed on March 3 knowing Apex did not yet exist, so Jordan remains potentially liable unless Jordan, Apex, and MillWorks agreed to a **novation**; the file shows no agreement discharging Jordan.

**Traps in this case**

*Treating incorporation or adoption as Jordan’s release*
- Exhibit 3 distinguishes Apex’s liability through adoption from Jordan’s release, which requires a novation rather than formation or a board resolution alone.

*Requiring a shareholder vote on the machine purchase*
- Under Exhibit 4, the **board** manages corporate business, and all three directors attended and unanimously approved the purchase; shareholders do not ordinarily decide it.

*Treating Jordan’s incorporator role as continuing authority*
- Exhibit 4 says Jordan’s organizational powers as incorporator ended after Jordan appointed the initial directors on March 22.

Question 8

Accepted Answer

***Riverbend is bound to ToolWorks despite Jordan’s lack of actual authority.***
- The **$55,000** cutter exceeded Exhibit 1’s $40,000 threshold, and Elena and Malik voted against it, so Jordan lacked the required majority approval.
- Under Authority 1, Jordan’s equipment order apparently carried on Riverbend’s ordinary business; Elena had directed ToolWorks to work with him, and ToolWorks had no notice of the internal limit.

***Riverbend’s knowing use of the cutter also supports ratification.***
- Riverbend employees used the delivered cutter for client work for three weeks while Elena and Malik knew of its use, supporting knowing acceptance of its benefits.
- If Riverbend owes ToolWorks the purchase price, **all three partners** are jointly and severally liable, but ToolWorks ordinarily must seek satisfaction from partnership assets before collecting from a partner’s separate assets.

**Traps in this case**

*Treating the agreement’s limit as notice to ToolWorks*
- Authority 1 says a restriction in a partnership agreement does **not by itself** notify a third party.

*Treating the vote or cancellation email as ending ToolWorks’ claim*
- The June 8 vote limited Jordan’s actual authority, but Elena emailed **Jordan**, who never contacted ToolWorks, and the later knowing use supports ratification.

*Making only Jordan pay because he placed the order*
- A partner’s dissent does not eliminate **joint and several liability** for a partnership obligation.

Question 9

Accepted Answer

***Harbor Design Studio is likely a partnership despite the independent-contractor label.***
- Ava and Ben operate a for-profit studio as equal co-owners, sharing contributions, work, profits, and losses; under Authority 1, their stated intent not to form a partnership does not control.
- The common business name does not make the studio a corporation, and working full time does not make Ava and Ben employees of one another.

***The printer purchase and table damage may be partnership obligations, with different bases for liability.***
- Ava’s $18,000 printer purchase appears to be ordinary studio business and likely binds the partnership unless the supplier knew or had notice of her authority restriction; her failure to obtain Ben’s signature may still expose her to **internal liability** under Exhibit 1.
- Ben damaged the table while performing a paid studio measurement, so the partnership and Ava and Ben as partners are potentially liable; a newly admitted partner would not become personally liable for these existing obligations **solely by admission** under Authority 1.

**Traps in this case**

*Treating the two-signature rule as an automatic defense to the supplier*
- The key fact to investigate is the supplier’s **knowledge or notice** of Ava’s restriction, not Ben’s private view of the purchase or Ava’s ability to reimburse the studio.

*Treating every architect’s debt as a studio debt*
- Ava’s unrelated personal credit-card debt is not a partnership obligation on the stated facts, unlike the studio printer purchase and Ben’s work-related property damage.

*Treating preliminary liability assessments as certain outcomes*
- Authority 1 supports likely or potential liability on these facts, not an unconditional promise that the supplier will prevail or that every claim against the partners will succeed.

Question 10

Accepted Answer

***Riverbend is a general partnership, but a partner’s power to bind it depends on the transaction and the third party’s notice.***
- Under Authority 1, Maya, Leo, and Noor became co-owners of a business for profit **without filing** an organizational document; Exhibit 1 gives each management rights, a majority control over ordinary decisions, and all three a vote on equipment purchases exceeding $25,000.
- GreenWorks received Exhibit 1 and acknowledged the **unanimous-approval requirement** before Maya signed the $30,000 mower order alone, giving Riverbend a strong nonliability position; Farm Supply had no notice of a restriction, and Noor’s $2,000 fertilizer order matched routine purchases, so it binds Riverbend.

***The cyclist’s claim may reach both Riverbend and its general partners.***
- Under Authority 1, Riverbend may be liable because Eli negligently injured the cyclist while driving its truck **within the scope of employment**, between customer sites without deviating from his route.
- General partners are **personally liable** for partnership obligations, so preliminary advice should acknowledge potential exposure for Maya, Leo, and Noor rather than promise a defense because Eli was driving.

**Traps in this case**

*Treating internal opposition as notice to a supplier*
- Leo’s personal objection to the fertilizer brand does not defeat Farm Supply’s contract; for another apparently routine rental, investigate whether the rental company **knew or had notice** that the signing partner lacked authority.

*Treating an employee’s identity as a liability defense*
- Authority 1 makes the scope of Eli’s work, not whether he was a partner, decisive for Riverbend’s potential tort liability.

Entity formation and promoters — MCQs

Entity formation and promoters — MCQs

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